ACCT 201 Principles of Financial Accounting
Practice Exam - Chapter 8
Reporting & Analyzing Long-Term Assets
Dr. Fred Barbee
Part I: Multiple-Choice Questions
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1. Once the estimated depreciation expense for an asset is calculated:
a.  It can't be changed due to the historical cost principle.
b.  It may be revised based on new information.
c.  Any changes are accumulated and recognized when the asset is sold.
d.  The estimate cannot be changed but the new information should be disclosed.
e.  It cannot be changed due to the consistency principle.
2. A machine originally had an estimated useful life of 5 years, but after 3 complete years, it was decided that the original estimate of useful life should have been 10 years. At that point the remaining cost to be depreciated should be allocated over the remaining:
a.  2 years.
b.  5 years.
c.  7 years.
d.  8 years.
e.  10 years.
3. Disposals of long-term assets:
a.  Never impact cash flows.
b.  Are investing activities.
c.  Always involve cash flows.
d.  Are operating activities.
e.  Are financing activities.
4. The modified accelerated cost recovery system (MACRS)
a.  Is the U.S. federal income tax rules for depreciating assets.
b.  Is part of generally accepted accounting principles.
c.  Is required for financial reporting.
d.  Is identical to units of production depreciation.
e.  All of the above.
5. A method that allocates an equal portion of the total depreciable cost for a plant asset to each accounting period during its useful life is called:
a.  Accelerated depreciation.
b.  Declining-balance depreciation.
c.  Straight-line depreciation.
d.  Units-of-production depreciation.
e.  Modified accelerated cost recovery system (MACRS) depreciation.
6. The original cost of an asset less its accumulated depreciation is called:
a.  Historical cost.
b.  Book value.
c.  Present Value.
d.  Current (market) value.
e.  Replacement cost.
7. A company purchased a POS cash register on January 1 for $5,400. This register has a useful life of 10 years and a salvage value of $400. What would be the depreciation expense for the second-year of its useful life using the double-declining balance method?
a.  $500.
b.  $800.
c.  $864.
d.  $1,000.
e.  $1,080.
8. Ordinary repairs:
a.  Are expenditures to keep an asset in normal operating condition.
b.  Are necessary if an asset is to perform to expectations over its useful life.
c.  Are treated as expenses.
d.  Include cleaning, lubricating, and normal adjusting.
e.  All of the above.
9. An asset can be disposed of by:
a.  Discarding it.
b.  Selling it.
c.  Exchanging it for another asset.
d.  Donating it to charity.
e.  All of the above.
10. A company sold a machine that originally cost $100,000 for $60,000 cash. The accumulated depreciation on the machine was $40,000. The company should recognize a:
a.  $0 gain or loss.
b.  $20,000 gain.
c.  $20,000 loss.
d.  $40,000 loss
e.  $60,000 gain.

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Part II: Short Problems

Short Problem #1

Match each of the following terms a through j with the appropriate definitions 1 through 10.

a.
 Extraordinary repairs
b.
 Obsolescence
c.
 Amortization
d.
 Depletion
e.
 Salvage Value
f.
 Book Value
g.
 Land Improvements
h.
 Copyright
i.
 Inadequacy
j.
 Patent

_____
1.
 Estimate of amount to be recovered at the end of a plant asset's useful life.
_____
2.
 Major repairs that extend the useful life of a plant asset beyond prior expectations.
_____
3.
 A process of allocating the cost of an intangible asset to expense over its estimated useful life.
_____
4.
 A right granted that gives its owner the exclusive privilege to publish and sell musical, literary, or artistic work during the life of the creator plus 50 years.
_____
5.
 A condition which, because of new inventions and improvements, a plant asset can no longer be used to produce goods or services with a competitive advantage.
_____
6.
 The total cost of a plant asset less its accumulated depreciation.
_____
7.
 The process of allocating the cost of natural resources to the periods when they are consumed.
_____
8.
 An exclusive right granted to its owner to manufacture and sell an item, or to use a process, for 17 years.
_____
9.
 A condition where the capacity of plant assets is too small to meet the company's productive demands.
_____
10.
 Assets that increase the benefits of land, have a limited useful life, and are subject to depreciation.

Short Problem #2

A company purchased a machine on January of the current year for $1,500,000. Calculate the annual depreciation expense for each year of the machine's life (estimated at 5 years or 40,000 hours, with a salvage value of $150,000). During the machine's 5-year life its hourly usage was: 4,000; 8,000; 16,000; 10,000; and 2,000 hours.

Year Straight-Line Units-of-
Production		 Double-Declining-
Balance
Year 1 $_______________ $_______________ $_______________
Year 2 $_______________ $_______________ $_______________
Year 3 $_______________ $_______________ $_______________
Year 4 $_______________ $_______________ $_______________
Year 5 $_______________ $_______________ $_______________

Short Problem #3

A company purchased and sold mining property containing 15,000,000 tons of ore for $4,875,000. In July 2001 it mined and sold 789,000 tons of ore and in 2002 it mined and sold 1,235,000 tons. Calculate the depletion expense for 2001 and 2002.








Part III: Problems

On January 2, 2001, a company purchased a delivery truck for $45,000 cash. The truck had an estimated useful life of seven years and an estimated salvage value of $3,000. The straight-line method of depreciation was used. Prepare the journal entries to record the disposition of the truck on September 1, 2005, under each of the following assumptions:

  1. The truck and $45,000 cash were given in exchange for a new delivery truck that had a cash price of $60,000.

  2. The truck and $40,000 cash were exchanged for a new delivery truck that had a cash price of $65,000.

         

Last Modified October 18, 2002